Yesterday news emerged that the inventor of Bitcoin has come forward. If the reports are to be believed then Sydney-based Australian entrepreneur Craig Wright is the real person behind pseudonymous inventor Satoshi Nakamoto.
But what exactly is Bitcoin? This week’s What The F***nce is all about cryptocurrencies and demystifying what they are all about.
In simplest of terms cryptocurrency is digital currency. Unlike centralised banking where the government controls the value of currency, cryptocurrencies are fully decentralised (meaning no one central authority has control over the network of transactions). Cryptocurrencies differ from traditional currency as they are limited in their supply, which creates a market cap on them. Traditional currency can always be created resulting in inflation.
The first and most famous cryptocurrency is Bitcoin. It is like other currencies in that it can be used to buy goods locally and electronically. But it differs in that the Bitcoin network is not tied to a country or any institutions. Also, every transaction that is made with Bitcoin is anonymous. You get Bitcoins through a process called Bitcoin mining. This is where individuals use a network of computers to solve a mathematical algorithm, once solved you are awarded Bitcoins.
Here is a great video that explains a little more about Bitcoin:
Despite Bitcoin being traded anonymously, there is a public record ledger of transactions which is called the blockchain. When Bitcoins are mined they produce what is known as a ‘block’ which is an individual data pattern. When Bitcoin is traded the individual pattern is added to the ‘chain’ ledger. So think of the blockchain being just like a bank statement, listing in chronological order all Bitcoin transactions. Here is a handy infographic showing the process: